Two major economic forecasters are now predicting recession in the near future, after nonprofit research group The Conference Board saw its Leading Economic Indicator (LEI) index drop 0.8% last month, and the Mortgage Banker Association (MBA) adjusted expectations for 2022 downward by 1%, projecting a fractional 0.6% GDP growth this year.
“While a recession is not in our baseline forecast, it is a coin flip at this point, as we estimate a roughly 50% chance that the U.S. could enter a recession over the next 12 months, with the most likely timing being in the first half of 2023,” the MBA wrote in their updated July forecast.
The LEI, which is an amalgamation of various forward-looking macroeconomic metrics including the S&P 500, consumer sentiment and new housing permits, fell for the fourth consecutive month and is down 1.8% on the year. Ataman Ozyildirim, senior director of economic research at The Conference Board, said in a statement that high inflation and tightening monetary policy are squeezing the economy, predicting a 1.7% growth in real GDP for 2022 (down from an earlier projection of 2.3%).
“Consumer pessimism about future business conditions, moderating labor market conditions, falling stock prices and weaker manufacturing new orders drove the LEI’s decline in June,” he said. “The coincident economic index, which rose in June, suggests the economy grew through the second quarter. However, the forward-looking LEI points to a U.S. economic downturn ahead.”
The MBA offered similar explanations for its new projections, adding that it expects inflation to decline over the next year, reaching the Federal Reserve’s target of 2% to 2.5% sometime in 2023 or 2024. As far as housing, the MBA revised their expectations lower for the year, predicting an 8% decline in existing home sales, but said mortgage rates would remain essentially flat, ending the year around 5.2%.
“In an already strained affordability environment, higher mortgage rates have reduced the pace of home sales, and now with the prospect of a weaker economy and an elevated risk of recession, potential homebuyers have pulled back even more,” they wrote. “Additionally, the new residential construction data have been weaker of late, with a slower pace of housing starts and permits, along with deteriorating homebuilder sentiment, driven by declining foot traffic of prospective buyers.”
Fed chair Jerome Powell has acknowledged that avoiding a recession while also bringing inflation down to its target level has been growing more difficult, pushing the central bank to increase the pace of interest rate hikes. Another hike of 75 basis points—or possibly even 100—is widely expected at the Fed’s meeting next week.
